VALUATION OF ORRSTOWN BANK To consider valuing any enterprise an analyst must make several assumptions based on their understanding of the firm. In considering the valuation of Orrstown Bank there are several difficult aspects to cover and consider. In this report, Orrstown bank is valuated in two ways. A valuation based on discounted cash flows, in this case Net Income. And a valuation based on market multiples. Both of these multipliers suffer in an examination of Orrstown and its unique problems. This will be covered in the conclusion.

Valuation based on discounted Cash flows: This valuation is basically considering the future of the firm as a project that can be discounted back to the present using the standard NPV formula:
NPV = ∑ CFn/(1+r)n
Forecasted Net Income is considered the future cash flows, the period (n) is five years. As Orrstown is forecasted to go bankrupt in 2015 a longer time scale did not seem necessary. The chosen discount rate is the Weighted Average Cost of Capital (WACC). In calculating NPV the discount rate is essential. WACC is a standard in determining the cost of financing (debt and equity) future cash flows and appeared most appropriate in this case. The WACC for Orrstown bank is a paltry .92%. This number is markedly below the value expected. Further investigation supports this number as most of Orrstown is financed by customer deposits, money market accounts, etc. at 91.15% of total financing. The amount any bank pays on these accounts is infinitesimal. There is no other debt financing such as corporate bonds, thus Orrstown’s average cost of debt was estimated at .3%. Standard Cost of Equity would be zero as…...

Similar Documents

...Tanay Roy Exclusive
COMPANY FINALYTICS
Bharti Airtel Ltd
Exclusive Financial Analysis of Indian Companies
Prepared and Edited By-
Tanay Roy, CFA Peu Karak, MBA
Disclaimer The information, opinions, estimates and forecasts contained in this document have been arrived at or obtained from public sources believed to be reliable and in good faith which has not been independently verified and no warranty, express or implied, is made as to their accuracy, completeness or correctness.
For more information about this sample and our other services, please write to tanay.roy2008@gmail.com
Tuesday, September 13, 2011
Description Summary Latest Result Valuation Matrix ROE Analysis Income Statement Balance Sheet Cashflow Statement Quarterly Result Growth Analysis Comparative Analysis Income Statement Balance Sheet Index Analysis Income Statement Balance Sheet Ratio Analysis Annual Quarterly TTM Analysis Technical Analysis
Page 3 3 3 3 4 5 6 6 7 8 8 8 9 9 9 10 10 11 11 12
CONTENT
About Tanay & Peu
Our passion lies in the field of financial research & Investment management and we intend to apply our knowledge gained over a period of years through intense study and keen observation of the nuances of financial markets and instruments to real life scenarios. We possess expert knowledge of financial products and markets as evidenced by top notch qualifications earned by us , all in the first attempt and keep ourselves abreast with the latest happenings and......

...AMITY INTERNATIONAL BUSINESS SCHOOL
ANALYSIS AND VALUATION OF EQUITY SECURITIES OF TATA CONSULTANCY SERVICES , INFOSYS AND WIPRO LTD.
SUBMITTED TO: SUBMITTED BY :
Ms.Vibha Singh Atreya Vyas
A1802011445
Section C
MBA IB
TABLE OF CONTENTS
S.No | Topic | Page Number |
1 | Introduction | 3 |
2 | Research Methodolgy | 4 |
2.1 | Research Objectives | 5 |
2.2 | Proposed Literature Review and Tentative Hypothesis | 5 |
3 | Data Collection | 7 |
4 | About Companies and Research | 8 |
5 | Limitation of Study | 11 |
6 | References | 12 |
1) INTRODUCTION
In today’s era every company needs cash or cash equivalents to run its day to day activities smoothly. The major sources through which companies can borrow money are:
* Bank Loans
* Debenture
* Preference Share
* Equity Share.
Bank Loan is the amount which companies receive after fulfilling all the required information which is mandate according to the rules of banks. Companies need to mortgage its assets as guarantee for the future repayment of its loan amt. on the loan bank charge interest which company has to pay irrespective of the fact that company is in profit or loss. Debentures are the instruments which are used to acknowledge the receipt of the debt form the debenture holders. Debenture Holders are sought lenders for the company. They...

...Bank Valuation: Comparable Public Companies & Precedent Transactions
Picking a set of comparable companies or precedent transactions for a bank is very similar to what you’d do for any other company – here are the differences: 1. The set has to be more specific due to differing regulatory requirements for different countries and types of banks. For example, if you’re looking at large-cap commercial banks in the US, you should not include regional banks or insurance companies even if they’re also large-cap – nor should you include Credit Suisse or Deutsche Bank, because they’re not US-based. 2. Rather than cutting the set by revenue or EBITDA, you use metrics like total assets or total deposits to determine the “size” of banks. 3. Instead of traditional metrics like revenue and EBITDA, you list the metrics and multiples that are relevant to a bank: EPS, Return on Equity (ROE), Book Value (BV), P / E, P / BV, and so on. Operating Metric Equity Value Book Value (BV) How to Calculate It Shares Outstanding * Share Price Shareholders’ Equity(1) What It Means How much are we worth? How much are we worth according to our assets rather than the market? How much are we worth to everyone except preferred shareholders? How much are we worth according to our incomeproducing assets? How much money do we make after taxes? How much money is left to pass on to common shareholders? How much in dividends could we potentially issue to each common shareholder? Does our market cap overvalue or......

...Valuation
Valuation is the process and procedures used to determine the current worth of a company. Valuation is used in deciding if a company is worth investing in , what price you should pay when buying a company and even financial and dividend choices when running a company . Some elements of a valuation are Economic conditions, financial analysis, and financial statements. When a financial analysts need to value a business, they often start by identifying a sample of similar firms. (Brealey, Myers, & Marcus, 2012). They then examine how much investors in these companies are prepared to pay for each dollar of assets or earnings. (Brealey, Myers, & Marcus, 2012). Valuation determines a company’s value by using internal and external factors whereas when determining a company’s value and using financial income statement it uses internal factors only. Valuation also is a company’s market value and income statement is the book value.
The definition of a stakeholder is a person, group, organization, or system that affects or can be affected by an organization's actions. The main stakeholders of a company are the employees, suppliers, investors, and customers. The Executives major goal is to create the most value for all stakeholders. This is a difficult goal. Executives know that long term value is what is best for their stakeholders especially with the economy the way it is today. However, corporate leaders are under great......

...strategy is to provide customers with everyday low prices. It is known for its discount stores. Wal-Mart’s competitors are Sears, Target, Gap, limited, Dillard’s, Macy’s and JC Penny. The major membership only warehouse competitor is Costco Wholsale.
Wal-Mart became a publicly traded firm in 1970 with an initial stock price of $16.50 per share and
subsequently, in March 1974, declared its first cash dividend of $0.05 per share (after two two-for-one stock splits). It had undergone 11 two-for-one stock splits, and thus, an original lot of 100 Wal-Mart shares had grown to 204,800 shares after the most recent split in April 1999.
For this valuation we will be using the dividend discount model, the capital asset pricing
model (CAPM) and price/earnings multiples.
Dividend Discount Model (DDM)
In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.
[pic]
I. Dividends in Perpetuity
The current stock price of Wal-Mart using this method is the present value of all expected future dividends, discounted at an investor’s required rate of return. A share is valued by forecasting futures dividends of Wal-Mart.
• Constant growth dividend discount model.
According to the constant growth DDM, the current value of a firm’s......

...Valuation
Assumptions
The models used to value the target firm SkyWest will include:
I. Residual Earnings Model (REM)
II. Abnormal Growth Model (AGM)
III. Dividend Discount Model ((DDM)
IV. Discounted Cash Flow Model (DCF)
V. Method of Comparables
These models have been based on some fundamental assumptions. These assumptions can be found in Appendix 1.1.
I. Residual Earning Model
The REM splits the intrinsic value of a company into two components; the book value and the present value of the future residual earnings. The discount rate used for future earning was the Cost of Equity found in Appendix 1.1. Through obtaining the earnings per share (EPS), book value per share (BPS) and dividends per share (DPS) from Bloomberg, it is possible to estimate the value of SkyWest. A growth rate of 2.6% (2012 financial statement) was applied. The value per a share shown in Appendix 1.2 is approximately 94 cents.
II. Abnormal Growth Model
The RE model anchors book value whereas, the AEG model anchors earnings. In applying the model the value per a share is equal to the capitalised earning plus the extra forecasted earning and applying a growth rate of 2.6% for the CV. In Appendix 1.3 the value per a share is $9.86. However, there seems to be a problem with the CV, through excluding the CV the value per a share is equal to approximately 33cents (0.02076/0.0636). Theoretically, the AEG and RE models should give the same valuations, but due to imperfections, the two......

...VALUATION TECHNIQUES
Vault Guide to Finance Interviews Valuation Techniques
How Much is it Worth?
Imagine yourself as the CEO of a publicly traded company that makes widgets. You’ve had a highly successful business so far and want to sell the company to anyone interested in buying it. How do you know how much to sell it for? Likewise, consider the Bank of America acquisition of Fleet. How did B of A decide how much it should pay to buy Fleet? For starters, you should understand that the value of a company is equal to the value of its assets, and that Value of Assets = Debt + Equity or Assets = D + E If I buy a company, I buy its stock (equity) and assume its debt (bonds and loans). Buying a company’s equity means that I actually gain ownership of the company – if I buy 50 percent of a company’s equity, I own 50 percent of the company. Assuming a company’s debt means that I promise to pay the company’s lenders the amount owed by the previous owner. The value of debt is easy to calculate: the market value of debt is equal to the book value of debt. (Unless the debt trades and thus has a real “market value.” This information, however, is hard to come by, so it is safe to use the book value.) Figuring out the market value of equity is trickier, and that’s where valuation techniques come into play. The four most commonly used techniques are: 1. 2. 3. 4. Discounted cash flow (DCF) analysis Multiples method Market valuation Comparable transactions method
Generally, before...

...Aswath Damodaran
1
VALUATION
Cynic:
A
person
who
knows
the
price
of
everything
but
the
value
of
nothing..
Oscar
Wilde
First
Principles
2
Maximize the value of the business (ﬁrm)
The Investment Decision Invest in assets that earn a return greater than the minimum acceptable hurdle rate
The Financing Decision Find the right kind of debt for your ﬁrm and the right mix of debt and equity to fund your operations
The Dividend Decision If you cannot ﬁnd investments that make your minimum acceptable rate, return the cash to owners of your business
The hurdle rate should reﬂect the riskiness of the investment and the mix of debt and equity used to fund it.
The return should reﬂect the magnitude and the timing of the cashﬂows as welll as all side effects.
The optimal mix of debt and equity maximizes ﬁrm value
The right kind of debt matches the tenor of your assets
How much cash you can return depends upon current & potential investment opportunities
How you choose to return cash to the owners will depend on whether they prefer dividends or buybacks
Aswath Damodaran
2
Three
approaches
to
valuaEon
3
¨
¨
¨
Intrinsic
valuaEon:
The
value
of
an
asset
is
a
funcEon
of
its
fundamentals
–
cash
ﬂows,
growth
and
risk.
In
general,
...

...of quality cement in Bangladesh. As per the course requirement we are told to conduct the fundamental analysis of Lafarge Surma Cement Limited. The company is a listed company and its shares are traded in the capital market. We have collected the annual reports of last couple of years and from the data we have prepared the proforma income statement, free cash flow and then ultimately the valuation of the company’s share. We have shown the market strategy of the company. They prefer differentiation that is high price for high quality. The industry life cycle indicates that Cement industry is in its growth stage. We have shown the competitive forces along with Michael Porter’s five force model. Competitive advantage and disadvantages are described there. Then the ratio analysis gives us the performance of the company. Then the prospective analysis gives us the intrinsic value of the company’s share, which is 16.79 Tk. whereas on 31 December, 2012 the market price was around 32 Tk. We have confirmed our valuation with the help of Sensitivity, Scenario and Simulation analysis. After the valuation we have found that the share is priced higher than the intrinsic value. That means the share is Overpriced. Holders of the share should sell the share or should take a short position of Lafarge surma’s’s share.
Analysis of the performance of the company through ratio analysis on four dimensions against benchmark, peer and industry as well as over time has been done. Determining......

...buyouts,” we did not have past cases to examine and compare previous decisions and so all our decisions are based off of our knowledge and extensive research of all the topics presented (Case 2). Objectives Throughout the paper, we will comment on the presenting team’s paper content and figures. Also, we will show why the presenting team’s calculations and paper content lacked some very important issues brought up in the case, such as, shareholder concerns and the proper way to calculate the price for the leveraged buyout (LBO). Some of the main differences between their case and ours are: • How to calculate the price for the LBO o They chose to use EBITDA o After reading various articles on LBOs we feel net present value (NPV) is a better valuation tool
3
•
Focus on various financial ratios o They calculated 22 different financial ratios that were not fully analyzed and they unfairly compared Seagate to the industry (Seagate is vertically integrated making it a different entity) o We feel that the Du Pont Identity allows us to better compare Seagate to the industry
•
Concern for the shareholders of Seagate and VERITAS o The presenting team failed to fully analyze this aspect but the case addressed this as a major concern, “the Silver Lake transaction had to be approved by both Seagate and VERITAS shareholders” (Case 2)
While the presenting team touched on some very important issues, they did not follow through with their information. Throughout the paper, we......

...management issue 26
Conclusion 30
Annex 31
Reference 34
Abstract
In this paper, we are engaged in deepening our analysis on the Orrstown financial services Inc. (ORRF).
First, we analyze the ORRF’s profitability by using two major indicators; the rate of return on assets (ROA) and the rate of return on common share holder’s equity (ROCE). ORRF’s ROA is compared with its industry ROA. Also, to deepen our understanding about the difference and the changes over time, we disaggregate ROA into the profit margin and the total asset turnover. Then, we evaluate ORRF’s ROA from three elements; economic and strategic analysis, profit margin analysis and asset turnover analysis. Finally, we calculate ORRF’s ROCE and evaluate its performance. Also, we examine ORRF’s capital strength by using several indicators, including Tier 1 capital ratio, Tier 2 capital ratio and Total capital ratio.
Second, to perform ratio analysis on ORRF, we scrutinize our CAMELS (Capital adequacy, Asset quality, Management, Efficiency, Liquidity and Sensitivity) analysis which we reported on our first paper. We compare a lot of ratios representing ORRF’s CAMELS with those of ORRF’s peer group. Due to data availability, we continue to use UBPR report prepared by the Federal Financial Institutions Examination Council. Therefore, strictly speaking, we actually compare Orrstown bank, ORRF’s fully owned subsidiary, with its peer banks.
Lastly, we deepen our analysis on historical managerial decisions made......

...their own management or wealthy raiders, who saw potential value
in restructuring or breaking up these firms. In the 1990s, we saw a wave of consolidation in
the media business as telecommunications firms acquired entertainment firms, and
entertainment firms acquired cable businesses. Through time, firms have also acquired or
merged with other firms to gain the benefits of synergy, in the form of either higher growth,
as in the Disney acquisition of Capital Cities, or lower costs.
Acquisitions seem to offer firms a short cut to their strategic objectives, but the
process has its costs. In this chapter, we examine the four basic steps in an acquisition,
starting with establishing an acquisition motive, continuing with the identification and
valuation of a target firm, and following up with structuring and paying for the deal. The
final, and often the most difficult, step is making the acquisition work after the deal is
consummated.
Background on Acquisitions
When we talk about acquisitions or takeovers, we are talking about a number of
different transactions. These transactions can range from one firm merging with another
1
2
firm to create a new firm to managers of a firm acquiring the firm from its stockholders and
creating a private firm. We begin this section by looking at the different forms taken by
acquisitions, continue the section by providing an overview on the acquisition process and
conclude by examining the history of the acquisitions in the United......

... do you think the acquisition is a good idea? Briefly explain your answer.
Yes. First, American Cable Communication (ACC) and AirThread could help each other compete in the industry that was moving more and more bundled service offerings. Second, the acquisition could help both companies expand into the business market. Third, ACC was in a unique position to add value to AirThread’s operations because the acquisition could save AirThread more than 20% in backhaul costs. The reasons above make us believe that the synergy is positive and the acquisition is a good idea.
Based on the projected cash flow information provided in the case, what is the stand- alone value of AirThread? Show the cash flow forecasts, discount rate, and your valuation model. (Hint: pay attention to the Working Capital Assumptions provided in Ex 1. For example, Accounts Receivable 41.67× means on average it takes 41.67 days to receive payment from customers. )
According to Jennifer Zhang’s analysis, we divide the stand-alone value of AirThread into two parts—operating value and non-operating value-- and then add the two parts together to get the result. First, when we calculate the operating value, we use the DCF model. We pick the risk-free rate from historical annual returns investments on T-bonds from 1928 to 2007 and use the geometric average, which is 5.4%, and collect the 5% equity market risk premium from the casebook. We assume the equity β as the average equity β of the industry, which is...

...Valuation
M&A involves using more than one valuation technique to arrive at a valuation that we think is fair. The most common techniques used are:
➢ Comparable Publicly traded companies (“Public Comps”) – this analysis indicates how the stock markets are valuing companies that are similar to the target
➢ Precedent Comparable Transaction analysis (“Transaction Comps”) – this analysis indicates the valuations at which prior M&A transactions have been done in the same industry as that of the target.
➢ DCF analysis – is one of the most important valuation techniques
➢ Sum-of-the-parts analysis – If a target has more than one lines of business, the financial advisor will value each business separately. Therefore, each “part” might have its own Public Comps, Transaction comps and DCF (with different WACCs for each part). The total value is the sum of the parts
➢ Other –depending on the unique characteristics of the transaction, financial advisors will perform a number of other analyses to arrive at fair value like Leveraged Buyout (“LBO”) Analysis, Historical Exchange Ration analyses etc.
Valuation
M&A involves using more than one valuation technique to arrive at a valuation that we think is fair. The most common techniques used are:
➢ Comparable Publicly traded companies (“Public Comps”) – this analysis indicates how the stock markets are valuing companies that are similar to the target
➢ Precedent Comparable Transaction analysis......